Wednesday 12 March 2014

The District Valuer's report sheds no light on the 'Allowable expenses'

Back in November I reported that the details of the deal between Scarlets Regional Ltd and the Council over the sale of a car park to Marston's Inns had finally spilled out from the Executive Board Member for Finance, Cllr Jeff Edmunds. I say 'spilled' as previous attempts to extract this information through FOI had been flatly refused.

The total proceeds were £850,000 and the remaining spoils, after deductions, were split 50/50. The Council ended up with £200,000 and Scarlets Regional Ltd, £220,000. No, not exactly 50/50 but that mathematical puzzle still remains a mystery.

In fact, the Scarlets ended up with around £600,000  and the Carmarthenshire taxpayer, £200,000.

What was of interest were the deductions prior to the split, as revealed by Cllr Edmunds;
Fees to agents and architects                     £50k
Allowable expenses to Scarlets                  £280k
Finders fee for buyer to Scarlets                 £30k
Compensation to club for loss of lease        £76k

Without a doubt the most curious figure is the 'Allowable expenses' of £280,000. This was made available to the Scarlets to pay off a third party loan. This was a loan from Henry Davidson Ltd, developers of the Eastgate centre in Llanelli, for fixtures and fittings for the Scarlets shop/restaurant within the development.

Henry Davidson Ltd have had business deals before with Marston's Inns Plc, we don't know whether they 'found Marston's' this time, but if they did then the £30,000 finders fee to the Scarlets may also be questionable.

£76,000 compensation for loss of lease isn't bad either considering that the Scarlets have yet to pay any rent for it, not so much as a peppercorn.

(Update 13th March; With regards to the agents and architects fees, Cllr Sian Caiach has provided us with a little more information in the comments section below...)

Anyway, back to the curious £280,000 allowable expenses. You may remember that at December's Council meeting, where, incidentally, councillors were treated to a presentation from Scarlets Regional Ltd, Cllr Caiach had called for the resignation of leader Kevin Madge over whether other councillors were aware of this generous windfall to the Scarlets prior to a decision, several months later, to continue with reduced payments on a £2.4m loan.

There was considerable buck passing at the meeting and eventually Director of Resources  insisted that the decision 'had been based on the findings of an independent valuer'  and conveniently passed the buck outside County Hall.

I requested a copy of the District Valuer's report which duly arrived yesterday. The response, and the report can be found here. Although it doesn't help solve the puzzle.

I also requested email correspondence between the parties, exchanged prior to the deal, in an attempt to determine exactly how these 'expenses' were arrived at.

That part of my request was refused under Section 43 'Commercial interest' and it was decided that the public had to be protected from such revelations as it may in future jeopardize the negotiating position of the council.
I doubt that's quite the case in this instance.

Digressing briefly, the council were equally coy over requests for similar information relating to the Towy Community Church. It seemed to touch a nerve somewhere in County Hall. My own efforts to understand the process of how this small group of fundamentalist evangelical christians were given £1.4m to build a bowling alley/church were deemed vexatious.

My appeal to the ICO was also dismissed with the council responding to the ICO by waving Justice Tugendhat's judgement under the nose of the investigator, embellishing it with words such as , 'political blogger', 'critical blog' and 'criminal offences'. As for the latter, I have never been investigated, let alone charged or found guilty of any 'criminal offences'.  Anyway, they seemed to have convinced the investigator.

Back to the District Valuers report (dated 7th January 2913) and it contains some interesting information, including reference to an earlier draft but for the purposes of this post I have copied the section relevant to the 'split' here (my underlining);

4.8 Determination of Apportionment of Proceeds

I have been instructed to calculate the percentage apportionment between the parties of any proceeds that a long leasehold disposal of the property may realise. 

I am of opinion that the percentage apportionment between the parties is weighted equally - 50% to Carmarthenshire County Council and 50% to Llanelli RFC.

Whilst any split is based upon the negotiating position of the parties, it is well established in valuation case law that proceeds between parties are split equally. Precedent of an equal split was held in the ‘ransom’ land case of Stokes v Cambridge (1961). An equal proportion split was also held in the case of Myers v Milton Keynes Development Corporation (1974).

My above opinion of market value of £850,000 represents the gross value. Against this figure there are numerous deductions to be borne (by both parties) to arrive at a net value. The deductions relate to various payments to be made by both parties, in order to engineer the transaction.

Given the negotiating position of both parties, I am of opinion that the value of the net sum is £400,000. Accordingly, the 50% apportionment of the net sum to be split between both parties is £200,000. Both parties have agreed the £200,000 apportionment

There is no mention of the details of the deductions, including the £280,000 to pay off a third party loan, not something which I would imagine could be said to 'engineer the transaction'. In other words, any expenses should be directly related to the sale of the property.

The council's 'excuse' was that the £280,000 deal would increase 'footfall' but this is simply nonsense and without evidence, and in any event, grants relating to regeneration are a separate channel of funding with very particular criteria. Well, that's how it's supposed to work anyhow.

So, although the valuer advised on the value of the land and lease and also suggested the proceeds should be split 50/50 (which is an arguable point in that the club haven't really paid anything for the site), there is no published information regarding the deductions which, minus the professional fees, are a cool £400,000.

It would appear from the Report than the District Valuer was not privy to the details of the deductions, or negotiations, and was presented with the final figure of £400,000.

I am no expert on these matters but common sense tells me it is all worth a second look, particularly the £280,000.

To the casual observer it looks very much like the origin of this highly favourable arrangement (favourable to the Scarlets of course, not the taxpayer) began long ago, probably in the council's hospitality box at Parc y Scarlets.

We also know that a meeting to decide on the 'deductions' was held at some point before the final deal was struck, persons present at the meeting included, amongst other unknown attendees, Cllr Kevin Madge and Mr Mark James.


Anonymous said...

Dynamite! Well done Caebrwyn.

This rotten borough council needs cleansing from the top down.

sian caiach said...

For completeness I would like to add that the £51K for "agents and architects fees" were later identified to me as having been split with £25k going to agents and £26k going directly to Henry Davidson's Developments, who therefore made quite a lot out more out of the deal than first thought.
No idea why Jeff Edmunds labelled it as Architects fees unless these were fees already paid for by HDD? HDD did have a scheme to build a shopping unit on the same site and perhaps it relates to this? That deal fell through, but perhaps CCC felt sorry for them and recompensed them for their losses?
Am looking into it.